How to Roll Your Old 401K into Self-Directed IRA Account

How to Roll Your Old 401K into Self-Directed IRA Account

Roll 401K into Self-Directed IRA Account

As you look to your future, sometimes unforeseen circumstances can occur. In the event where you find yourself out of a job, for any reason, whether you are retiring, switching companies, or experiencing a layoff, that doesn’t mean you have to leave your 401K behind.

Many companies provide their employees with a 401K and may contribute to that retirement fund over the time. By the time you leave your position, whether planned or not, it’s possible to have a hefty lump sum accumulated. If you want to expand on this fund, or grow your retirement further, consider rolling your 401K over to a self-directed IRA.

If you are looking to start an SDIRA with a fund you’ve already built, there is a very easy way to transfer your funds. Rolling over your existing 401K to a self-directed retirement plan can allow you to explore alternative assets, benefit from tax advantages, and could provide secure nest egg for your future.

Why Rollover to an SDIRA?

Self-directed IRAs grant you personal control over your funds. Though the IRS states that your assets must be handled by a certified IRA custodian, this retirement plan places you in the driver’s seat. All asset allocation, selections, and financial planning are done by the account holder. Of course, as the account holder, you are responsible for any mishaps that may occur when setting up your fund. Perform your due diligence and be sure you are selecting a plan that’s right for you.

Investing in Alternative Assets

In addition to account freedom, where most traditional IRA and Roth IRAs through bank trusts are limited to stocks, bonds, and treasury, SDIRA accounts can take advantage of many other options. Self-directed IRA owners have the perk of exploring alternative assets. With the wealth you’ve already accumulated in your existing 401K, you can invest in real estate, private loans, small businesses, precious metals or many other options.

With so many alternative investments, you can build a strong, versatile portfolio that will not only utilize the funds you’ve already accumulated, but help their long-term growth.

While an SDIRA allows for many investment options, there are limitations. Most collectibles, artwork, and life insurance are considered off-limited by the internal revenue service. While the IRS doesn’t have a direct list of assets you can invest in, they do have a list that states specifically what you cannot. After considering whether or not a self-directed IRA is right for you, you can take the steps to rollover your 401K.

Rolling Over Your Account: Direct and Indirect Rollovers

Rolling over your 401K to a self-directed account can be a simple task provided you follow all the necessary steps. After you’ve left your position, if you don’t want to be penalized from moving your funds out of your company 401K, you can distribute them into a self-directed traditional IRA or Roth IRA. You can choose direct rollovers or indirect rollovers. Either option should be compliant with all IRS procedures to avoid any tax penalties. Following the transfer, be sure to have an IRA custodian selected as per IRS regulations.

Direct Rollovers

Direct rollovers are the easiest and safest way to move your funds to a self-directed IRA. This is a trustee-to-trustee transfer that avoids any penalty. You don’t have to hold on to your funds as you wait for the transaction to occur. Before attempting an account rollover, make sure your 401K and new IRA accounts are compatible. As you begin the process, follow the IRS’s procedure.

Make a request for a statement from your 401K admin and put in for a Direct Rollover Certification form. After filling out the proper paperwork and performing your due diligence, all that’s left to do is sit back and wait for the changes. This direct trustee-to-trustee transfer is non-taxable and allows for a quick transfer. If you prefer a more hands-on approach, you may want to consider an indirect rollover.

Indirect Rollovers

If you wish to handle your account transfer personally, you can do so with an indirect rollover. While you still need to follow a similar process to a direct rollover, the difference is the transfer is being performed by you. As you pull your money from your 401K for the transfer, account holders have a total of 60 business days to transfer the funds to avoid the 10% early withdrawal penalty. Any rollover must be pre-approved and the proper paperwork must be completed to follow through any transaction without penalty.

Taking Control of your Retirement Plan

As you prepare for your future, it’s crucial to perform your due diligence with any investment matter. As you take charge of your retirement savings with a self-directed account, be sure to follow any regulations set up by the IRS. Explore every option as you set-up a secure retirement for you and your family.